Many American workers grapple with various financial pressures in their daily lives, such as covering housing costs, vehicle expenses, fuel, groceries, and other essential bills.
Regardless of age, a common concern among them is planning for retirement and ensuring long-term financial stability, often through savings tools such as 401(k) plans and Individual Retirement Accounts (IRAs).
Personal finance radio host and author Dave Ramsey has some blunt advice about how workers can use 401(k)s and Roth IRAs to bolster their income during future retirement years.
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Related: Dave Ramsey bluntly warns Americans about Social Security
As people approach retirement age, they often begin modifying their spending habits to match changing lifestyles, priorities and needs.
Because housing costs are a major expense, many people downsize their homes or move to retirement communities.
Health care can also be more expensive during retirement as people age. People are eligible to enroll in Medicare at age 65, but the federal program does not cover all medical costs.
Social Security monthly paychecks begin arriving once a person files a claim. People can claim benefits at age 62, but the longer they wait to begin collecting that money, the higher the monthly amounts will be.
Other retirement expenses frequently include travel, groceries, phones, cars and gas.
Ramsey explains that these can add up, so building one’s nest egg during their working years is an important task.
Dave Ramsey speaks with TheStreet about personal finance issues. The personal finance radio host and author explains some important things to consider when using 401(k)s and IRAs for retirement savings.
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Dave Ramsey bluntly shares advice on 401(k)s
Ramsey points to a study his company put together that found 80% of millionaires said investing in their company’s employer-sponsored retirement plans such as a 401(k) was a major factor in building their wealth.
Those retirement plans feature benefits such as employer matching (essentially a guaranteed 100% return on a percentage of contributions made) and tax-free or tax-deferred contributions people can make as they watch the value of their investments grow.
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For 2025, employees can contribute up to $23,500 to their 401(k)s if they are under 50 years old. Those aged 50 and older can also make catch-up contributions of an additional $7,500, which brings the total limit to $31,000.
“Let’s say you woke up at 45 years old with nothing saved for retirement before deciding to max out your 401(k),” Ramsey wrote on the Ramsey Solutions website. “What would happen? Well, if you invest $22,500 every year for 20 years in good growth stock mutual funds, you could retire at age 65 with about $1.6 million in your nest egg.”
Related: Dave Ramsey sends strong message on 401(k)s, Roth IRAs
Dave Ramsey suggests using a Roth IRA in addition to a 401(k) plan
Between traditional IRAs and Roth IRAs, Ramsey recommends the latter because contributions are made after taxes are paid. This allows for tax-free withdrawals when one retires.
The annual contribution limit to Roth IRAs for people under 50 is $7,000. People aged 50 and older can add another $1,000 to that total with the catch-up provision.
Referring to people who are getting started late on their retirement savings and investing, Ramsey suggested contributing to both 401(k)s and Roth IRAs.
“Between your 401(k) and Roth IRA, you can really gain back some lost ground and make a comeback for the ages,” Ramsey wrote.
Saving money by cutting back expenses is an important retirement strategy as well.
Ramsey suggests canceling subscriptions and memberships — asking readers, for example, if they really need Netflix, Hulu and Disney+. He suggests picking one and getting rid of the rest. And the same applies for gym memberships, magazine subscriptions and cutting the cable cord.
Ramsey also recommends cooking meals at home instead of dining out and shopping around for less expensive car insurance.
“Cutting some things from your budget can be painful,” Ramsey wrote. “You might need to give up your annual summer vacation to the beach or say ‘No!’ when your friends want to go eat at that fancy restaurant.”
“But remember, you’re making short-term sacrifices that will help you retire on your terms.”
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